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Testing Twin Deficits and Saving-Investment Nexus in Turkey

Yıl 2017, Cilt: 3 Sayı: 1, 35 - 46, 25.12.2017

Öz

This paper provides fresh evidence on the validity of twin deficit and the Feldstein-Horioka hypotheses for Turkey during the period of 1987-2004 using bounds testing approach to cointegration. In order to explain the main determinants of the current account deficits in the long-run, the fiscal balance and the domestic investments are used in an econometric model.The cointegration tests indicate the presence of a long-run relationship between the current account and budget deficits as well as the domestic investments during the estimation period.  As a result, it is concluded that the twin deficit hypothesis and the Feldstein-Horioka puzzle are present and Turkey appeared to be integrated into the world capital market with a low degree of capital mobility as less than 1/5 of its domestic investment is financed through external funds. The augmented Granger-causality tests suggest no causality between the current account and budget deficits, both in the short-run and the long-run. The post-sample variance decompositions suggest that the domestic investments are the main cause of current deficits in the long-run. The paper also discusses the policy implications of the empirical results.

Kaynakça

  • Altintas, H., Taban, S. 2011. Twin deficit problem and Feldstein Horioka puzzle hypothesis in Turkey: ARDL bound testing approach and investigation of causality. International Research Journal of Finance and Economics 74: 30-45.
  • Barro, R. J. 1974. Are government bonds net wealth? Journal of Political Economy 82: 1095-1117.
  • Coakley, J., Kulasi, F., Smith, R. 1996. Current account solvency and the Feldstein – Horioka puzzle. Economic Journal, 106: 620-627.
  • Dickey, D. A., Fuller, W. A. 1981. Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica 49: 1057-1072.
  • Dickey, D. A., Fuller, W. A. 1979. Distribution of the estimators for autoregressive time series with a unit root. Journal of American Statistician Association 40: 12-26.
  • Feldstein, M., Horioka, C. 1980. Domestic saving and international capital flows. The Economic Journal 90: 314-329.
  • Fidrmuc, J. 2003. The Felstein-Horioka puzzle and twin deficits in selected countries. Economics of Planning 36:135-152.
  • Engle, R. F., Granger, C. W. J. 1987. Cointegration and error correction: representation, estimation and testing. Econometrica 55: 251-276.
  • Elliot, G., Rothenberg, T., Stock, J. 1996. Efficient tests for an autoregressive unit root. Econometrica, 64: 813-836.
  • Khan, M.A., Saeed, S. 2012. Twin deficits and saving-investment nexus in Pakistan: evidence from Feldstein-Horioka puzzle. Journal of Economic Cooperation and Development, 33: 1-36.
  • Marinheiro, C.F. 2013. Ricardian equivalence, twin deficits and the Feldstein-Horioka puzzle in Egypt. Journal of Policy Modelling 30: 1041-1056.
  • Narayan, P.K. 2005. The savings and investment nexus for China: evidence from cointegration tests. Applied Economics 37: 1979-1990.
  • Pesaran, M. H., Shin, Y., Smith, R. J. 2001. Bounds testing approaches to the analysis of level relationships. The Journal of Applied Econometrics 16: 289-326.
  • Phillips, P.C.B., Perron, P. 1988. Testing for a unit root in time series regression. Biometrika, 75: 335-346.
  • Sachsida, A., Caetano, M.A.R. 2000. The Feldstein-Horioka puzzle revisited. Economics Letters 68: 85-88. , Sims, C. A. 1980. Macroeconomics and reality. Econometrica 48: 1-48.

Testing Twin Deficits and Saving-Investment Nexus in Turkey

Yıl 2017, Cilt: 3 Sayı: 1, 35 - 46, 25.12.2017

Öz

This paper provides fresh evidence on the validity of twin deficit and the Feldstein-Horioka hypotheses for Turkey during the period of 1987-2004 using bounds testing approach to cointegration. In order to explain the main determinants of the current account deficits in the long-run, the fiscal balance and the domestic investments are used in an econometric model.The cointegration tests indicate the presence of a long-run relationship between the current account and budget deficits as well as the domestic investments during the estimation period.  As a result, it is concluded that the twin deficit hypothesis and the Feldstein-Horioka puzzle are present and Turkey appeared to be integrated into the world capital market with a low degree of capital mobility as less than 1/5 of its domestic investment is financed through external funds. The augmented Granger-causality tests suggest no causality between the current account and budget deficits, both in the short-run and the long-run. The post-sample variance decompositions suggest that the domestic investments are the main cause of current deficits in the long-run. The paper also discusses the policy implications of the empirical results.

Kaynakça

  • Altintas, H., Taban, S. 2011. Twin deficit problem and Feldstein Horioka puzzle hypothesis in Turkey: ARDL bound testing approach and investigation of causality. International Research Journal of Finance and Economics 74: 30-45.
  • Barro, R. J. 1974. Are government bonds net wealth? Journal of Political Economy 82: 1095-1117.
  • Coakley, J., Kulasi, F., Smith, R. 1996. Current account solvency and the Feldstein – Horioka puzzle. Economic Journal, 106: 620-627.
  • Dickey, D. A., Fuller, W. A. 1981. Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica 49: 1057-1072.
  • Dickey, D. A., Fuller, W. A. 1979. Distribution of the estimators for autoregressive time series with a unit root. Journal of American Statistician Association 40: 12-26.
  • Feldstein, M., Horioka, C. 1980. Domestic saving and international capital flows. The Economic Journal 90: 314-329.
  • Fidrmuc, J. 2003. The Felstein-Horioka puzzle and twin deficits in selected countries. Economics of Planning 36:135-152.
  • Engle, R. F., Granger, C. W. J. 1987. Cointegration and error correction: representation, estimation and testing. Econometrica 55: 251-276.
  • Elliot, G., Rothenberg, T., Stock, J. 1996. Efficient tests for an autoregressive unit root. Econometrica, 64: 813-836.
  • Khan, M.A., Saeed, S. 2012. Twin deficits and saving-investment nexus in Pakistan: evidence from Feldstein-Horioka puzzle. Journal of Economic Cooperation and Development, 33: 1-36.
  • Marinheiro, C.F. 2013. Ricardian equivalence, twin deficits and the Feldstein-Horioka puzzle in Egypt. Journal of Policy Modelling 30: 1041-1056.
  • Narayan, P.K. 2005. The savings and investment nexus for China: evidence from cointegration tests. Applied Economics 37: 1979-1990.
  • Pesaran, M. H., Shin, Y., Smith, R. J. 2001. Bounds testing approaches to the analysis of level relationships. The Journal of Applied Econometrics 16: 289-326.
  • Phillips, P.C.B., Perron, P. 1988. Testing for a unit root in time series regression. Biometrika, 75: 335-346.
  • Sachsida, A., Caetano, M.A.R. 2000. The Feldstein-Horioka puzzle revisited. Economics Letters 68: 85-88. , Sims, C. A. 1980. Macroeconomics and reality. Econometrica 48: 1-48.
Toplam 15 adet kaynakça vardır.

Ayrıntılar

Bölüm Makaleler
Yazarlar

Ferda Halıcıoğlu

Kasım Eren Bu kişi benim

Yayımlanma Tarihi 25 Aralık 2017
Yayımlandığı Sayı Yıl 2017 Cilt: 3 Sayı: 1

Kaynak Göster

APA Halıcıoğlu, F., & Eren, K. (2017). Testing Twin Deficits and Saving-Investment Nexus in Turkey. Yildiz Social Science Review, 3(1), 35-46.